New research report on the geography of credit invisibility

Creditworthy consumers can face difficulties accessing credit if they lack a credit record that is treated as "scorable" by widely used credit scoring models. These consumers include those who are "credit invisible," meaning that they do not have a credit record maintained by one of the nationwide consumer reporting agencies (NCRAs). They also include those who have a credit record that contains either too little information or information that is deemed too old to be reliable. The Bureau published two previous Data Points about consumers with limited credit histories. The first, Credit Invisibles, estimated the number and demographic characteristics of consumers who were credit invisible or had an unscorable credit record. The second, Becoming Credit Visible, explored the ways in which consumers establish credit records.

According to these Data Points, consumers who are Black, Hispanic, or living in low-income neighborhoods are more likely to have trouble accessing credit due to an unscorable credit record or no record at all. A long-standing concern relating to credit access for the Bureau and other policymakers is the importance of geography in accessing credit. This concern goes at least as far back as early efforts to combat redlining and other forms of unlawful discrimination. Redlining is a term used for an illegal practice under which people living in a certain area or neighborhood are not given the same access to credit as people in other areas or neighborhoods on the basis of race, color, or another prohibited characteristic. Identifying cases of redlining has been a priority for the Bureau and other agencies.

In conjunction with the Bureau’s symposium, Building a Bridge to Credit Visibility, we released a third Data Point discussing credit invisible consumers, The Geography of Credit Invisibility, which provides a closer look at the relationship between geography and credit invisibility. This study examines geographic patterns in the incidence of credit invisibility to assess the extent to which where one resides is correlated with one’s likelihood of remaining credit invisible.

Key findings include:

Focusing on the incidence of credit invisibility among adults 25 and older may better identify tracts where access to traditional sources of credit is more limited

Our research found that over 90 percent of consumers transition out of credit invisibility by their mid-to-late 20s. This observation may indicate that focusing on the population of consumers age 25 and older is most useful in identifying geographic areas where traditional sources of credit are scarce, sometimes referred to as “credit deserts.”

Credit invisibility among adults 25 and older is concentrated in rural and highly urban geographies

Our research found that, while credit invisibility is more common in rural areas as a percentage of the population, over two-thirds of adults 25 and older who are credit invisible reside in metropolitan areas because of the higher population within those areas. We also observed elevated likelihood of credit invisibility in rural areas regardless of the tract’s income level, in contrast to a strong relationship between neighborhood income and the likelihood of credit invisibility in highly urban areas.

Consumers in rural and low-to-moderate income areas use credit cards as entry products less often than consumers residing in other geographies

Among consumers who successfully transition out of credit invisibility, the overall rate of using a credit card as an entry product is much lower for those living in rural areas. Additionally, among this same population, our research found that the rate of using a credit card as an entry product is also lower for consumers living in lower-income neighborhoods. This result is more pronounced in highly urban areas.

Lack of internet access appears to have a stronger relationship to credit invisibility than does the presence of a bank branch

While younger adults residing near bank branches in highly urban areas used credit cards as entry products more often than those residing further away, overall we found little relationship between distance to the nearest branch and the incidence of credit invisibility. In contrast, our research did find that many credit products are originated through online means, causing credit invisibility to be more prevalent in areas with less internet access.

While determining the underlying factors that cause sustained credit invisibility is difficult and beyond the scope of this study, highlighting areas where credit invisibility is more common can help policymakers focus on those areas and advance the conversation about potential causes and solutions.